Definition

Return on Investment (ROI) is a metric used to measure profitability relative to capital deployed. It is typically expressed as a percentage.

ROI is calculated by dividing net profit by the initial investment amount.

Example in Context

If a trader invests $5,000 and generates $500 in net profit, the ROI is 10%.

FAQs

Does ROI account for time duration?

Standard ROI does not account for time unless it is annualized.

Is higher ROI always better?

Higher ROI may indicate stronger returns but may also reflect higher risk exposure.

Is ROI the same as total profit?

No. ROI expresses profit as a percentage, while total profit is measured in dollar terms.

Related Terms